The Brutal Truth About the Invention Process

Ed Zimmer has written what I think is one of the best articles on the web for inventors, "New Product Licensing" on his helpful website The Entrepreneurs Network.

I thought is was one of the best distillations of the challenges of the invention process and it offers priceless advice for inventors. Here's Part I of his article:

* * * * *

You have a new product idea that you believe would sell very well were it only available on the market -- but you don't have the time or resources to "venture" the product, i.e., to manufacture it (or have it contract-manufactured) and sell it yourself. What now?

Realistically, the best advice you could be given is to forget the idea -- and get on with your life.

Your only alternative is to try to "license" the product idea, i.e., to find an existing product-line manufacturer already selling other products into your target market -- and try to convince them that they should add your product to their product line -- and share their profits on that product with you (typically by paying you a "royalty" on their sales of that product).

But your odds of licensing that idea are tiny -- no better than 1 in 1,000 (and probably much lower). Why?

1. Your idea is probably not new.

Just because you haven't seen it in the market says little. There are many times more products available from specialty catalogs than you'll see in your local stores. (Many of these specialty catalogers now have websites, where you can find their offerings with diligent searching -- but many still do not.) It's possible (even likely) that your idea has already been tried and failed (because of market or technology reasons that still hold true) -- and the only way you can find that out is by talking with old-timers in the industry. And even if it hasn't been tried, it's possible (even likely) that important product features of your idea have been already patented by someone else -- and the only way you can find that out is through a professional patent search (which will cost you upwards to $1,000.)

2. Manufacturers are not looking for new products.

They have a 3-5 year queue of new products and product improvements already in development. They've thoroughly researched the profit potential of each of these -- and are well along in developing them. When you submit your new idea to them, your idea is in competition with what they're already working on. They'll displace or defer one of their projects only if yours shows significantly greater profit potential -- and if you can't quantify and substantiate that profit potential (as thoroughly and accurately as an industry insider), then the profit potential of your idea has to be much greater (and obviously much greater) to tempt them to research that profit potential themselves.

3. It may not be possible to manufacture your product at the cost necessary for it to retail at a price customers will pay.

A new consumer product typically must be manufacturable at no more than 1/6 of its retail price to adequately compensate the product's distribution channel (e.g., the manufacturer must sell at 2 times their manufactured cost to cover their operating costs and profit, the wholesaler must sell at 1.5 times their cost and the retailer at 2 times their cost -- 2 x 1.5 x 2 = 6). There are many good product ideas that simply can't be manufactured for the needed cost -- in fact finding a way to manufacture a product at the needed cost is frequently the much more difficult problem than simply designing the functionality.

4. Adequate intellectual property protection may not be available.

Understand that a patent does not protect the function you intended -- it protects only your particular design or method -- and only those features of your design or method that have not already been patented (or made known) by someone else. If it is not possible to get a broad patent (i.e., one that protects all economical ways of providing your intended user benefits), it's unlikely anyone will license your idea. Why should they share their profits with you on a product which -- if the product sells as well you hope -- they know that their competitors will soon be selling the same or similar product without having to share their profits.

5. There are so many reasons it will probably not work out.

And there are a virtually infinite number of reasons why any single company might not be interested in your product or improvement.

* The product's potential sales aren't large enough to be of interest. If expected sales are less than 1% of their current sales into that market, they'll almost certainly not be interested -- it's just not worth the hassle to them. At 1%, they might have interest -- if the product just naturally flows right into their existing manufacturing and marketing structure -- but it will typically take 10% or more for them to have any strong interest. (A large company, like P&G, frequently simply abandons products whose sales, although too low for P&G, would be top-sellers for a smaller company.)

* The required front-end investment is just too large or too uncertain. A smaller company can't afford the investment that a larger company can. But even a larger company may not have interest if the engineering costs can't be accurately pinned down -- the risks are just too great. And virtually no company will try to develop a new market (new to them) for a new product from the outside -- that's far too risky.

* The required operational changes are too great. Many large companies have so much invested in their existing tooling and training that they're virtually chained to the status quo. General Motors, for example, gets about 25,000 new idea submittals a year -- and, on average, licenses only 1 -- and not because there weren't some very good ideas among them -- but because they simply can't afford to change.

* They have no interest in outside ideas. Some companies have decided that looking at ideas from the outside is simply not worth the effort -- and purposefully reject any attempts at submittal. Yes, they may miss something that they may later wish they'd seen -- but they've made the business decision that that possibility isn't worth the time and effort to review all the ones that weren't.

* You approached them incorrectly. Companies live by systems and procedures -- without them there'd be chaos. Companies that may have some interest in outside ideas have set up a system and procedure for reviewing those ideas. If you use that system and procedure, your idea will get the most complete review that the company is willing to give -- and if you don't, you'll likely get an incomplete, or no, review.

* The company's going through hard times... or a management change... or just have too many new products on their plate right now. If you had approached them last year -- or maybe next year -- they might have been interested -- but not now.

* Other. And besides the many objective reasons like those above, there are as many or more subjective reasons: Your presentation wasn't clear enough -- or someone in the decision loop decided you'd be too difficult to deal with -- or there's something about you that they just don't like or trust -- or they were just having a bad day...

I am curious to know if other experienced inventor agree with his advice. What do you think of what he has to say? Is it true?

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MichelleFeatured BloggerInventorSpot.com

Article originally published in February 2007 and republished after updating.

An Inventor wrote to me strongly disagreeing with my statement that this is a great article and that the article is factually incorrect.

I just want to remind folks that as a website for inventors, we want to offer valuable information and from differing perspectives.

I personally thooght it was one of the best I read because it was "brutal" in laying out the challenges that some inventors may face.

Sometimes, people need to be armed with the facts or the reality (even if its couched negatively) to better arm themselves and prepare themselves for the challenges they will face.

Our website is not dedicated to getting people to become inventors. Our site is dedicated to helping inventors, to be armed with the right type of information and support to be successful in what they do or help them choose not to do it.

I thought this article would elicit some strong reactions and I hope it triggers much dialogue and thought.

I already know what part II is, and that is the key to this whole miserable game! First let me vent a little! I will post later the excruciating details of the process, but this will be a synopsis of what happend today! I've come to the conclusion, the wheels are falling off the American manufacturing machine - Americans are lazy, fat, and overpaid! I'm American, so I can say what I've said! I met with 3 manufactureing companies today, trying to get a company to embrace a simple product that I have a Patent filed on. The companies all have the capabilities to produce the product, but since it's a little outside the box of what they normally do - It's like babysitting! Trying to get the lazy ***K's to do a little thinking, and embrace a new product, and figure a way to manufacture it! OK, Thanks - I'm done!

Part II will be - after all Ed Zimmer said?! And, what? You still have passion, and you know you can "Stare into the Abyss" , laugh, and dive in with a half gainer, & quadruple sommer sault, and get that new idea to market?!!! Ah, yes you whom beleive this are the true spirit of the definintion - AMERICAN INVENTOR'S!